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BOJ governor as confidence builder-in-chief - Wynter upbeat at first briefing

Published:Friday | February 12, 2010 | 12:00 AM

R. Anne Shirley, Business Writer

On Wednesday, new Bank of Jamaica (BOJ) Governor Brian Wynter conducted his first quarterly press briefing, which was well attended.

Overall, Wynter was very bullish on the way forward for the Jamaican economy.

But he surprised the media by indicating that the Financial Sector Support Fund (FSSF) was being set up as a contingent fund that will be available to provide liquidity support to financial institutions - commercial banks, merchant banks, building societies, insurance companies and securities dealers - as a result of the potential impact of their participation in the Jamaica Debt Exchange (JDX) that most of the danger has passed already.

The financial institutions, by and large, have not, to date, faced signi-ficant margin calls from their external creditors, he said, and further that given the overall 97 per cent take-up of the JDX that in very short order Jamaica's credit rating should improve and confidence will return to the market.

He also noted that the establish-ment of the FSSF is a work-in-progress, and, given the over-whelming support of the JDX programme by the local investors, is not anticipated that the FSSF will require funding to the tune of US$950 million as has been previously reported.

AT VARIANCE WITH IMF

The need is now anticipated at around US$800 million-US$850 million, and is really being put in place out of an abundance of caution, the governor suggested.

This position flies somewhat in the face of the impression that had been given by the International Monetary Fund (IMF) staff and the other multilaterals that the gravity of the situation is such that the dis-bursements to Jamaica are being front-loaded deliberately in order to provide needed liquidity support to financial institutions under the FSSF.

In fact, the IMF staff has pointed out that the stress tests conducted on the Jamaican financial sector indicate that the securities dealer sector is a particular source of risk because of "the structure of its assets under management, weak capital base, and external borrowing subject to margin calls".

They also pointed out that "given the relative size of the securities dealer sector and interlinkages within financial conglomerates, pressures within the securities dealer sector could spill over to the financial system more broadly."

It was in this context that the multilaterals agreed to the establish-ment of a US$950-million support fund - broken down US$450 million from the IMF, US$200 million from the World Bank and US$300 million from Inter-American Development Bank.

Checks by the Financial Gleaner suggest that these funds have already been approved. However, the BOJ governor, in optimistic pronounce-ments, said some of these funds may not really be needed.

His inflation projections are also different from the IMF's at 9.5 per cent to 11 per cent for the current fiscal year ending March 2010, while for the upcoming 2010/11 fiscal year they were 7.5 per cent to 9.5 per cent. In contrast, the IMF staff is indicating inflation for the current fiscal year of nine per cent and this will move to an average of 11.25 per cent for FY 2010-2011.

BOJ INTERVENTIONS

The governor also noted that in January, the BOJ purchased $13 billion of GOJ securities on offer, out of a total of $36 billion, which will mature in mid-March.

There are two other issues on the market, and the BOJ is prepared to enter the market, if necessary, to assist the Government in the short term.

Wynter refused to indicate the extent to which the central bank would be willing to intervene in the foreign-exchange market, to defend the Jamaican dollar and to maintain stability in the market. Nor was he willing to indicate the amount that would be available to the BOJ under the qualitative criterion attached to the IMF standby agreement to defend the JMD.

In the supplementary information provided by the IMF staff on February 3, to the executive board of the IMF, they noted that net intervention by the Bank of Jamaica in January was to the tune of US$50 million.

They noted that while the foreign-exchange pressure in the early part of January was largely because of uncertainties related to the upcoming JDX, "pressure in most recent days is related to a strong demand for foreign exchange by local investors for Jamaican eurobonds."

Wynter was certainly bullish on the way forward, and it will be interesting to hear his comments at his next quarterly press briefing.

renee.shirley@yahoo.com